What Is the Origin of Disability Insurance?
Disability insurance provides a layer of financial protection in the event of an unexpected injury, accident or illness that prevents a person from working. The origin of disability insurance is closely related to the situations these types of policies cover and reflects the history of the insurance industry from its very beginnings.
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Accident Insurance Coverage
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The insurance industry first emerged during the 1850s with the first accident insurance policies introduced by the Franklin Health Assurance Company. These policies were initially designed for employees within the steamboat and railway industries and provided a means of financial protection in the event of injury or catastrophe, according to the Disability Insurance Info reference site. Soon thereafter, the commercial health insurance industry incorporated partial accident protection within their policy lines. In 1863, the Travelers Insurance Company developed policy lines devoted solely to general accident coverage. These developments marked the origin of disability insurance policies within the United States.
Indemnity Clauses
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By the late 1890s, insurance companies added indemnity clauses to accident insurance policies, These clauses provided coverage for disabilities that result from specific diseases. By 1910, indemnity clauses provided coverage for all disease conditions, according to the National Bureau of Economic Research. In 1896, competition within the life insurance industry prompted some companies to start waiving premium payment requirements in the event of total or permanent disability, a practice that's still in existence today. By 1916, indemnity clauses added another provision that allowed life insurance policies to be paid out in portions or percentages of their face values in situations where total or permanent disability was present.
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Workmen's Collective Insurance
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The workmen's compensation insurance plans of today help to protect employees in the event of work-related accidents. These plans first appeared as workmen's collective insurance during the early 1900s. By 1911, federal laws governing workmen's compensation required employers to insure accidents that take place at work. Since that time, employer-sponsored group policies also cover non-work-related accidents and illnesses that result in disabling conditions. The early 1900s also saw insurers move from a standard one-year coverage period to unlimited coverage terms. Up until 1915, insurers cancelled policy coverages after a year, which was standard practice. As of 1915, policy coverage was not canceled provided policyholders kept up on their premium payments. This change brought about higher premiums and medical examination requirements for policyholders.
Social Security Disability Insurance
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Social Security Disability Insurance, or SSDI, is the federal government's version of disability coverage for people who are unable to work. Originating in 1956, the Social Security Administration provides disability insurance coverage in the form of monthly payments for those affected by physical or mental handicaps. The Social Security Administration also set out to further define a disabling condition as one that severely hampers a person's ability to work and will most likely have a lifetime impact on the person. The eligibility requirements for SSDI are more strict than those enacted under workmen's compensation coverage.
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